Australia’s coal sector is in trouble.
As commodity prices fall and operating costs burgeon, the Australian Coal Association (ACA) has estimated NSW and Queensland have lost over 9000 jobs in the past 15 months.
The ACA commissioned research by consulting group Wood Mackenzie, which highlighted the critical condition of NSW coal mines.
The research was commissioned in a bid by the resources industry to campaign against Labor’s mining and carbon tax.
It was recently reported more than half the coal exported through Newcastle is being done at a loss.
Around 85 per cent of Newcastle’s coal exports are comprised of lower-priced thermal coal used in power stations. Unlike coking coal, which is used in steelmaking and stood at about $US140 a tonne, the lower-priced thermal coal stood at about $US87 in May this year.
The Wood Mackenzie report said more than 40 of the 71 thermal mines reviewed had cash operating costs higher than this.
Some traders said their thermal coal sales were as low as $US72 a tonne.
Backlash from councils
Minerals Council of Australia Chief Mitch Hooke recently attacked the coal project approval system in Australia, saying the process is in crisis.
“By any measure, Australia’s problem with project approvals is lurching from a major issue to a full blown crisis,” he said.
“Just ask the 1800 workers in the Hunter Valley coalfields whose jobs have been swinging in the breeze for the last four years as two major mining companies work through the approvals processes to expand existing operations.”
Hooke mentioned the Drayton South and Mount Thorley Warkworth mines in the Hunter Valley, which are hanging in the balance as the operators wait for the green light to access reserves on existing sites.
He said almost 1800 direct jobs, hundreds of indirect jobs and more than $100 million a year in revenue for Hunter Valley businesses are at risk as the projects wait for approval.
Owner Anglo American have made around 10 changes to the Drayton South mine to fulfil requirements including assurances it will not access around 35 per cent of the available coal. This is so that there is a sufficient buffer between the mine and nearby race-horse breeders.
Four years and 25 meetings (with breeders) later, the company is yet to receive approval. In fact, the company was recently told a Planning Assessment Commission process was being deferred by the NSW Planning Minister to examine further visual mitigation.
Rio Tinto’s Mount Thorley Warkworth mine received expansion approval but that was thrown out at the last minute by the NSW Land and Environment Court.
“Amongst other things, the court ruled that the expansion should be halted because an activist group claimed it might create new jobs, potentially attracting workers from other industries,” Hooke said.
“Come again? Shouldn't our economy be in the business of creating new jobs?”
The mining industry recently protested over the doubling of green tape between federal and state governments, arguing it had shelled out a further $820 million over 10 years to get federal environmental grants.
The coal industry is most affected where miners have to go through a three-year approvals process – more than double the rest of the world.
An example is Whitehaven’s Maules Creek, which got NSW Government approval last year and conditional approval from the federal government in February, but then had to fulfil additional environmental criteria before getting the green signal.
Lost opportunities, lost jobs, lost investment
It is processes like these that led the NSW Minerals Council to warn constant project delays would cost NSW billions of dollars in investment and tens of thousands of jobs.
The Minerals Council recently released research from PricewaterhouseCoopers, which said project delays of 12 months or more could cost NSW 29,000 jobs, $10.3 billion in lost investment and $600 million a year in lost mining royalties over the next 20 years.
The research said under the current planning system, NSW could lose an opportunity to create an additional 29,000 jobs over the next 20 years.
The Council’s CEO Stephen Galilee told Australian Mining the ‘broken’ planning system is the cause behind lengthy delays of 12 months or more for some projects.
“We’ve got duplications in planning approvals between state and federal environmental approvals. We have seemingly endless legal and merits appeals against decisions that are made, all of which are leading to greater investment uncertainty in NSW,” he said.
According to reports, more than 1600 jobs have been lost in NSW mining in the past six months, but industry estimates puts unreported figures to twice as much, Galilee said.
“I do fear that unless we get the right policies in place from state and federal governments, we’re going to see more job losses in NSW because of both the difficult trading conditions and the unhelpful policy settings that the industry has to deal with at the same time.”
The Council asked PwC to model economic costs of continued mining project delays in NSW under the current planning delays. PwC modelled the economic cost of delays in mining approvals for six months, 12 months or more.
They then surveyed members on projects they currently have in the planning stage or development pipeline and asked what the impact would be if they experienced delays of 12 months or more.
“They found firstly that around one third of those projects will be unlikely to proceed.
“And secondly the overall economic costs to the NSW economy over the next two decades, the period that they modelled, were that 29000 jobs would not be created in the mining sector, predominantly coal mining,” Galilee said.
The scenario was modelled against existing business-as-usual forecasts from the Department of Trade and Investment in NSW.
Galilee views the Hunter and Illawarra as the most important mining regions in NSW, noting the Hunter region has the world’s largest coal export port and generates 85 per cent of electricity for NSW and 30 per cent of electricity for the country.
Coal is a particularly valuable commodity export as it contributes around 20 per cent to the state’s exports by value. So the region plays an important role in trading relationships with regions like south east and north Asia.
“Similarly in the Illawarra the contribution that mining was making to the local economy there was in the order of around 11 per cent of gross regional product so again mining is playing a very important role in that regional economy,” Galilee said.
The Hunter business and community leaders, as well as union representatives came together for a coal industry roundtable meeting in late June and developed a communique asking the NSW government to develop a Hunter coal industry strategy.
The roundtable asked for recognition of the importance of the coal industry for a healthy economy in the Hunter region.
It asked for complete support from the NSW Government and an effort from it to develop a robust NSW planning and approvals system that brings about certainty for the region and the industry.
The coal industry strategy also asked for greater public understanding of the stringent standards in place to protect the community.
Solutions to fix the broken system
Galilee suggested modifications to the NSW planning system that could remedy the problem for NSW. He said the government needs to put statutory time frames around assessment processes so that the industry can be confident planning assessments will take place within a certain period.
“They can take a leaf out of the book of Queensland government in relation to that where a coordinated effort has been made from the very top of the Queensland government to halve mining approval times.
“Progress is being made there in Queensland so there are some good lessons that we can take that apply in NSW,” he said.
Galilee commended Queensland recently when its government allocated $30 million in new exploration funding in the State Budget to give the Geological Survey of Queensland a leg up to search for new mineral deposits across the state over the next three years.
“Queensland has shown the way by backing minerals exploration and investment. The NSW Government needs to match this pro-growth message or risk losing investment and jobs to our northern neighbour and interstate rival,” Galilee said.
“Instead of slugging the industry with $75 million in new taxes, fees and charges like it did last year, the NSW Government must support mining in NSW and back the jobs of our mining workers.
“NSW is the original mining state and mining still delivers a quarter of all our exports by value. We must not lose mining investment and jobs to Queensland or anywhere else.”
Rail and road tour
Galilee went on the NSW Mining Road and Rail Tour from July 8-16, visiting mines such as the Northparkes gold and copper mine and Western Plains Zoo in Dubbo. He also visited mining towns such as Gulgong, Mudgee, Bathurst and Lithgow, meeting mayors and the CFMEU along the way.
He ended the tour in Western Sydney at Flexco in Baulkham Hills, a manufacturer and supplier of parts for conveyor belts, mostly for mining. The company employs 48 people.
“We know mining contributes greatly to regional NSW, but it also contributes significantly to Western Sydney. The NSW Minerals Council’s detailed economic survey of its members found that the 21 companies surveyed directly spent around $124 million in the Blacktown City Council area in 2011/12.
“The research showed that mining companies directly provided $7.5 million in wages to 63 full time employees over this period and spent $116 million on goods and services. The estimated flow-on effect of this economic stimulus in terms of additional spending was $285 million,” Galilee said.
Federal member for Mitchell in north western Sydney Alex Hawke and state member for Baulkham Hills David Elliot were also present.
Flexco has felt the brunt of the mining downturn. According to managing director Chris Bayliss, Flexco has had to burn 12 per cent of its profit margin to encourage its export markets and to be able to sell competitively overseas.
“We had to downgrade our profit to export. You’ve got to be aggressive in this market. You have to take a hit on the chin to maintain the volume of work here or you don’t sustain the business.
“The downturn is probably something I don’t really want to talk about publicly because next thing, my competitors will be saying they know what they’re turning out and where they’re down,” Bayliss told Australian Mining.
“So I’m not going to talk about that but let me tell you (the effect of the mining downturn) has been substantial.”
Flexco had to eliminate one shift but Bayliss said the company invested money in efficiencies and lifted exports, which has sustained demand in the factory.
Glimmer of hope
But it is not all doom and gloom for the mining industry in NSW. Galilee said if the planning system can be fixed and if the state can get relief from some of the taxes and charges such as the carbon tax, NSW could have a prosperous mining future.
He wants to see the carbon tax eliminated. He also does not want it replaced with anything else including an emissions trading scheme unless Australia’s major trading partners follow suit.
“It’s not delivering a reduction in overall emissions. It’s simply transferring those emissions and those jobs and that investment to other places around the world,” he said.
“The tax burden on the industry is very high and it is making our industry less competitive than we need to be in our highly competitive global environment. It is a dead weight on our economic activity here in Australia for no environmental gain at all.”
The NSW Minerals Council supports the Federal Coalition’s proposal to introduce a ‘one-stop shop’ for environmental approvals should they be elected at the next election.
“We note that it was a commitment that was previously given by the current Labor government, which they unfortunately abandoned towards the end of last year,” Galilee said.
He wants the government to pursue the one-stop on environmental approvals on a bipartisan basis no matter which party is in power.
Noting that NSW has mineral deposits across a range of commodities including metallurgic and thermal coal, gold, copper, silver, zinc, nickel, lead and rare earths, he is optimistic about the state’s potential.
“We do have some very good positive advantages in relation to our industry and we’ve got a very long and rich mining history, with NSW being the original mining state.”